LSI Industries (LYTS) 8-K/A Financial Statements and Report of Independent Certified Public Accountants

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION 

On February 21, 2017, LSI Industries Inc. (LSI or Company) completed the acquisition of all the capital stock of Atlas Lighting Products, Inc. (Atlas) a Burlington, North Carolina manufacturer of high-quality LED lighting products for $97.5 million, which consisted of a cash payment of $96.9 million and an aggregate value of $0.6 million related to 200,000 five-year stock warrants with a fair value of $2.87 per warrant. The following unaudited pro forma condensed combined financial information has been prepared to give effect to the acquisition by LSI using the acquisition method of accounting with the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2016 and the year end June 30, 2016 combine the historical statements of operations of LSI and Atlas, adjusted to reflect the pro forma effect as if the acquisition of Atlas occurred on July 1, 2015 (the first day of the Company’s 2016 fiscal year). The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of LSI and Atlas as of December 31, 2016 and reflects the pro forma effect as if the acquisition of Atlas occurred on that date. LSI’s historical consolidated financial statements referred to above were included in its Quarterly Report on Form 10-Q for the six months ended December 31, 2016 and Annual Report on Form 10-K for the year ended June 30, 2016. Atlas’s historical financial statements are reported for the comparable periods and are included in this Current Report on Form 8K/A. The accompanying unaudited pro forma condensed combined financial information and the historical consolidated financial information presented therein should be read in conjunction with the historical consolidated financial statements and notes thereto for LSI described above. The historical statements of Atlas have been adjusted to conform to the Company’s financial statement presentation.

The unaudited pro forma condensed combined balance sheet and statements of operations include pro forma adjustments which reflect transactions and events that are directly attributed to the acquisition and are factually supportable and with respect to the statements of operations, and are expected to have a continuing impact on the combined results. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2016 and the year end June 30, 2016 are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on July 1, 2015, nor are they necessarily indicative of the future results of the operations. The unaudited pro forma condensed combined statements of operations and pro forma condensed combined balance sheet include adjustments to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of Atlas.

LSI Industries Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 2016
(amounts in thousands)
	Historical			Historical Atlas			Pro Forma			Pro Forma
	LSI			Lighting			Adjustments			Total
Assets:
Current Assets
Cash	$	33,023		$	1,657		$	(30,893)	A	$	3,787
Accounts Receivable		49,541			8,888			-			58,429
Inventories		42,404			9,164			228	B		51,796
Asset Held for Sale		3,176			-			-			3,176
Prepaids and Other Current Assets		2,996			186			-			3,182
Total Current Assets		131,140			19,895			(30,665)			120,370
Property, Plant and Equipment
Land		6,422			-			-			6,422
Leasehold Improvements		-			1,171			-			1,171
Buildings		34,654			-			-			34,654
Machinery and Equipment		78,908			5,427			526	C		84,861
Construction in Progress		1,697			-			-			1,697
Less; Accumulated Depreciation		(78,255	)		(3,416	)		-			(81,671	)
Net Property, Plant, and Equipment		43,426			3,182			526			47,134
Goodwill		10,508			-			47,097	D		57,605
Intangible Assets		5,378			-			34,319	E		39,697
Other Long-Term Assets		5,384			71			-			5,455
Total Assets	$	195,836		$	23,148		$	51,277		$	270,261
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt and lease obligations	$	-		$	96		$	-		$	96
Accounts Payable		13,917			3,809			-			17,726
Accrued Expenses		22,980			3,343			1,480	I		27,803
Total Current Liabilities		36,897			7,248			1,480			45,625
Long-Term Debt		-			173			66,000	A		66,173
Other Long-Term Liabilities		1,119			360			69	F		1,548
Shareholders' Equity
Common Stock		115,631			781			(206)	G, H		116,206
Retained Earnings		42,189			14,586			(16,066)	G, I		40,707
Total Shareholders' Equity		157,820			15,367			(16,272)			156,915
Total Liabilities and Shareholders' Equity	$	195,836		$	23,148		$	51,277		$	270,261

LSI Industries Inc.

Unaudited Pro Forma Condensed Combined Statements of Operations

For the Six months ended December 31, 2016

(amounts in thousands, except per share data) 

			Historical
	Historical		Atlas		Pro Forma			Pro Forma
	LSI		Lighting		Adjustments			Total
Net Sales	$	169,817	$	28,281	$	-		$	198,098
Cost of Products and Services Sold		126,432		18,020		(120)	J		144,332
Restructuring Costs		1,143		-		-			1,143
		42,242		10,261		120			52,623
Gross Profit
Restructuring Costs		210		-		-			210
Selling and Administrative Expenses		38,148		8,614		772	K,L,M		47,534
Operating Income		3,884		1,647		(652)			4,879
Interest (Income)		(55)		-		66	N		11
Interest Expense		21		6		735	N		762
Income before Income Taxes		3,918		1,641		(1,453)			4,106
Income Tax Expense		1,083		-		270	O		1,353
Net Income	$	2,835	$	1,641	$	(1,723)		$	2,753
Earnings Per Share
Basic	$	0.11						$	0.11
Diluted	$	0.11						$	0.11
Weighted Average Common Shares Outstanding
Basic		25,294							25,294
Diluted		25,859							25,859

LSI Industries Inc.

Unaudited Pro Forma Condensed Combined Statements of Operations

For the Twelve months ended June 30, 2016

(amounts in thousands, except per share data) 

				Historical
	Historical			Atlas		Pro Forma			Pro Forma
	LSI			Lighting		Adjustments			Total
Net Sales	$	322,196		$	59,454	$	-		$	381,650
Cost of Products and Services Sold		238,525			37,773		(241)	J		276,057
Gross Profit		83,671			21,681		241			105,593
Selling and Administrative Expenses		69,715			15,466		2,149	K,L,M		87,330
Operating Income		13,956			6,215		(1,908)			18,263
Interest (Income)		(84	)		-		132	N		48
Interest Expense		36			23		1,470	N		1,529
Income before Income Taxes		14,004			6,192		(3,510)			16,686
Income Tax Expense		4,522			-		985	O		5,507
Net Income	$	9,482		$	6,192	$	(4,495)		$	11,179
Earnings Per Share
Basic	$	0.38							$	0.45
Diluted	$	0.37							$	0.44
Weighted Average Common Shares Outstanding
Basic		24,988								24,988
Diluted		25,592								25,592

LSI INDUSTRIES INC.

NOTES TO THE UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial statements are based upon the historical consolidated financial statements of LSI Industries Inc. (LSI or Company) which were included in its Quarterly Report on Form 10-Q for the six months ended December 31, 2016 and Annual Report on Form 10-K for the year ended June 30, 2016 and the historical financial statements of Atlas Lighting Products, Inc. (Atlas) are reported for the comparable periods and are included in this Current Report on Form 8K/A. The unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2016 and the year end June 30, 2016 combine the historical statements of operations of LSI and Atlas, adjusted to reflect the pro forma effect as if the acquisition of Atlas occurred on July 1, 2015 (the first day of the Company’s 2016 fiscal year). The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of LSI and Atlas as of December 31, 2016 and reflects the pro forma effect as if the acquisition of Atlas occurred on that date.

In accordance with generally accepted accounting principle, the acquisition of Atlas by LSI is being accounted for using the acquisition method of accounting. As a result, the unaudited condensed combined balance sheet has been adjusted to reflect the allocation of the purchase price to the identified assets and assumed liabilities based upon the Company’s fair value assessment and the excess purchase price to goodwill. The purchase price allocation in these unaudited pro forma condensed combined financial statements is based upon the purchase price of $97.5 million which consists of $96.9 million cash and 200,000 warrants with a fair market value of $2.87 per warrant.

Pro Forma Adjustments

A.	Cash paid for the acquisition of Atlas from the Company’s available cash with the difference of the cash consideration coming from the Company’s Line of Credit.
B.	Fair value adjustment of Atlas’s finished good inventory.
C.	Fair value adjustment of Atlas’s fixed assets.
D.	The value of goodwill as of December 31, 2016.
E.	Fair value adjustment of Atlas’s intangible assets.
F.	Includes an estimated liability for uncertain tax positions of Atlas of $406,000 and an accrued liability for paid time off of $23,000 partially offset by the elimination of a deferred rent liability of $360,000.

G.	Elimination of the Atlas’s common stock and retained earnings.
H.	Stock warrants issued as part of the purchase consideration. 200,000 warrants were issued at a fair market value of $2.87 per warrant with an aggregate fair value of $0.6 million. The fair value of the warrants was determined as of the date of acquisition.
I.	Acquisition deal costs of $1.48 million.
J.	The decrease in depreciation expense is a result of the fair value adjustments and re-evaluation of useful lines of Atlas’s fixed assets. The decrease in depreciation expense over a six month period will approximate $120,000 and the decrease in depreciation expense over a twelve month period will approximate $241,000.
K.	The elimination of certain private company expenses. Private company expenses removed from the combined results approximate $785,000 for the six month period and $964,000 for the twelve month period.Certain executive salary amounts which approximate $1.3 million in the six month and $2.5 million in the twelve month period are included in the unaudited proforma condensed combined statements of operations. These salary amounts are not anticipated to continue.
L.	Amortization expense of Atlas’s intangible assets. Amortization expense for the six month period is $1.207 million and $2.413 million for the twelve month period.
M.	The increase in expenses that Atlas will incur as a result of its integration into LSI. Costs include audit fees, compensation and benefit expense, a representation and warranty insurance policy related to the acquisition of Atlas, offset with known property and casualty insurance cost savings. Additional costs approximate $350,000 for six months and $700,000 for twelve months.
N.	The increase in interest expense is the result of the interest expense incurred on the funds borrowed to purchase Atlas. Assumed an average loan balance of $58 million over the period reported at a borrowing rate of 2.534% approximates $1.5 million of interest expense over a twelve month period and $0.7 million over a six month period. Also, interest income generated on invested cash was reduced to purchase Atlas. Assumed the reduction of $33 million of invested funds at an interest rate of 0.4% which approximates $132,000 for the twelve month period and $66,000 for the six month period.
O.	Adjust income tax to reflect an effective tax rate of 33%